Category Archives: Taxation

Federal Tax Developments Related to Covid-19

By: Coleman Jackson, Attorney & Certified Public Accountant
March 30, 2020

As you can imagine, things are changing and developing fast and furious during this Covid-19 Pandemic. Developments in taxes are no exception! Our law firm desires to keep our clients and others informed with regards to certain tax developments that might impact their businesses. In keeping with that desire, note some of the most significant recent federal tax developments:

  1. Tax Day now July 15, 2020: The U.S. Treasury and Internal Revenue Service automatically extended from April 15, 2020 to July 15, 2020 the federal income tax filing due date. The IRS gives affected taxpayers until the last day of the Extension Period to file tax returns or make tax payments, including estimated tax payments, that have either an original or extended due date falling within the Period. The IRS will waive any interest and late filing and payment penalties related to these late tax returns.
  2. Small and midsize employers can begin taking advantage of two refundable payroll tax credits designed to immediately and fully reimburse them, dollar of dollar, for the cost of providing Coronavirus-related leave to their employees.
  3. The CARES Act of 2020 enacted in response to Covid-19 provides employers with an employee retention credit in the amount of 50% of their wages impacted by closure due to Covid-19. Further the Act which became law on March 27, 2020 extends the due date for paying employer payroll taxes. Taxpayers must carefully review the law and properly compute the amount of payroll taxes that can be deferred; because it is not 100% deferral of all payroll taxes. Note: The Small Business Administration has announced that they are taking applications for disaster relief from small businesses with respect to loans up to two million dollars for monies borrowed to make payroll and pay rent during this Covid-19 Crisis. The application process and details regarding what businesses qualify and the procedures for applying can be found on the Small Business Administration website. The SBA has announced that they have relaxed some of their processing and documentation requirements to expedite the processing of these emergency loans to small businesses impacted by Covid-19. It appears that these SBA emergency loans could be converted to grants under certain condition(s). The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected Covid-19 taxpayers who need them to apply for benefits or to file amended tax returns claiming casualty losses. Watch our blogs as more changes may be forth coming in the area of employer relief due to Covid-19 closures. But for now, this appears to be the game plan regarding employers.
  4. “Existing Installment Agreements –For taxpayers under an existing Installment Agreement, payments due between April 1 and July 15, 2020 are suspended. Taxpayers who are currently unable to comply with the terms of an Installment Payment Agreement, including a Direct Deposit Installment Agreement, may suspend payments during this period if they prefer. Furthermore, the IRS will not default any Installment Agreements during this period. By law, interest will continue to accrue on any unpaid balances.” Source: IR-2020-59, March 25, 2020.
  5. The CARES Act eliminates the 10% early withdrawal penalty for Covid-19 related distributions from retirement accounts and make other rule changes regarding retirement account contributions.
  6. The Act relaxes certain corporate and individual charitable contributions rules and provides for an above the line deduction up to $300 for charitable contributions.
  7. Texas has been declared a Presidential Disaster Area related to Covid-19, so more specific rules and provisions could be developed by the IRS related to individuals and businesses with business operations in Texas or impacted by this particular Presidential Disaster Area Declaration.

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader. You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432

Thinking About Taxes

By:  Coleman Jackson, Attorney & Certified Public Accountant
March 07, 2020

Thinking About Taxes

Thinking about spending that money withheld from employees’ wages to take a tour of the world, pay other business expenses or house payments?  Don’t do it before reading Internal Revenue Code Section 7702!   Hear those alarm bells ringing!  Anyone required to collect, account for, and turn over to the United States Treasury and willfully fails to carry out this duty are subject to severe civil penalties and upon being found guilty of the felony of failing to collect, account for, and turn over can be fined up to $10,000 and spend up to five years in federal prison.  Payroll tax fraud is a serious crime that is commonly investigated by the IRS Criminal Investigation (CI) Division.  This unit of the IRS investigates all kinds of violations of the Internal Revenue Code.  CI along with the Financial Crimes Network investigates FBAR violations (these are U.S. persons with foreign bank accounts and other foreign assets who fail to timely and accurately disclose these holding on Form 114), money laundering (these are individuals or entities engaged in some kind of unlawful activity and endeavoring to get dirty money into the normal banking system) and other financial crimes.

 

Thinking about not filing that required income tax, gift tax or other federal tax return or providing fraudulent information the IRS?  Don’t do it before reading Internal Revenue Code Sections 7207 and 7203Hear those whistles blowing!  Anyone who intentionally gives false documents, which includes returns and any other written representation to the Internal Revenue Service and any of its employees knowing that its materially false or fraudulent is subject to civil fines and upon being found guilty of the felony of giving the Service false returns or other documents can be fined up to $10,000 (if individual) and up to $50,000 (if corporation), and spend up to one year in federal prison.  Multiples applies in that cumulative false statements, returns and documents can generate multiplication of the civil fines and additional years to the duration of the prison term.

 

Thinking about paying fewer taxes than is lawfully owed by engaging in creative accounting, leaving that or this item off the return while adding and dreaming about things that never happened? Don’t do it before reading Internal Revenue Code Section 7201Hear those gongs clanging! Anyone who intentionally attempts to evade or defeat any tax imposed under the Internal Revenue Code is subject to civil penalties up to $100,000 (if individual) and up to $500,000 (if corporation), and spend up to five years in federal prison upon conviction.

 

Thinking about taxes?  Stay away from the tumbling … lie.


This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432     

How Do You Get Rid of an IRS Tax Lien?

By:  Coleman Jackson, Attorney, Certified Public Accountant
January 29, 2020

How Do You Get Rid of an IRS Tax Lien

When the Internal Revenue Service sends you a tax bill and you do not pay it, a federal tax lien is created by operation of law whether the IRS files the lien in the public property records in your state or not.  A tax lien is merely an enforceable claim that attaches to your property and right to property.  If the IRS files the lien in the public property records, they must under the law inform you of this action.  This is done by a Notice of Federal Tax Lien.

 

IRS levy property

A federal tax lien does not authorize the IRS is take your property.  For this, the IRS must levy your property.  A levy is a lawful process by which the taxing authority can take your property or right to property without the necessity to obtain a court order. Don’t get confused between a lien (notice of tax debt) and a levy (taking of your property).  Taxpayers have a right to appeal both actions in the Office of Appeals and possibly to the U.S. Tax Court if their challenge is timely.For now, the question in this blog is how do you get rid of an IRS tax lien?

 

Taxpayers can get rid of an IRS tax lien

Taxpayers can get rid of an IRS tax lien!  If the tax debt has paid in full, the taxpayer can get rid of the tax lien by seeking a release of the lien.  This is typically an automatic process; but if it’s not, request a release of the lien.  Taxpayers can seek exemption of certain property from the lien.  This is typically done to facilitate the sale or financing of real property or business property with an attached federal tax lien.  Taxpayers can post a bond and ask that the lien be released.  Taxpayers can get rid of a tax lien by filing a challenge in the Office of Appeals as to procedural issues since the IRS must comply with exacting legal rules with respect to filing federal tax liens.  Perfecting an IRS tax lien like any lien is a matter of state law which varies from state to state.   In Texas property law varies from county to county.  This simply means that the IRS must comply with each counties law when filing liens in the county property records.  There are 254 counties in Texas.  In addition to any procedural issues,taxpayers can also get rid of a federal lien by challenging it on substantive legal grounds.  Finally, taxpayers can get rid of an IRS tax lien if the ten-year collections statute has expired unless the collection statute has been extended or suspended by bankruptcy proceedings or for other reasons.  The release of the tax lien is automatic on the expiry of the ten-year collection statute.  This is merely a summary of how to get rid of a tax lien; in law, there are a lot of twist and turns depending upon all the facts and circumstances.

 

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432

Federal Taxation and Cutting Horses:  It’s Not Just About The Horses

By:  Coleman Jackson, Attorney, Certified Public Accountant
December 16, 2019

Federal Taxation and Cutting Horses: It’s Not Just About The Horses

Recently I came across a United States Tax Court memorandum decision dated November 25, 2019 involving a South Dakota farmer with a cutting horse and seed business.  The issues in the case that struck me were (1) whether the taxpayer’s cutting horse activity was an activity “not engaged in for profit” within the meaning of Section 183 of the Internal Revenue Code, and (2) whether the taxpayer should be required to pay the accuracy-related penalties under Section 6662(a) of the Internal Revenue Code.  The case was Lowell G. Den Besten, Petitioner v. Commissioner of Internal Revenue, Respondent, T.C. Memo 2019-154 (November 25, 2019).  Note that Tax Court Memo decisions cannot be used as precedent by other taxpayers.  So this blogs aim is to pull general observations from the Besten case because federal taxation and cutting horses is not just about the horses.

 

The significant thing for other individuals and businesses who find themselves tangled in a spirited horse race with the IRS is not whether they are in the cutting horse business or whether or not they are in the seed business

The taxpayer won on two of the three issues argued before the U.S. Tax Court.  The significant thing for other individuals and businesses who find themselves tangled in a spirited horse race with the IRS is not whether they are in the cutting horse business or whether or not they are in the seed business.  The significant points of this case are (a) the IRS holds a presumptive correctness in all tax deficiency matters, and (2) the taxpayer always bears the burden to prove that; more likely than not, they are entitled to the deductions claimed on their tax returns.  That means that the taxpayer must always maintain and produce credible substantiation of all items recorded on their tax returns.  This has been operative tax law governing IRS deficiency cases ever since the United States Supreme Court ruled on these two points in a pair of federal tax cases known as Welch v Helvering, 290 U.S. 111, 115 (1933) and New Colonial Ice Co., v. Helvering, 292 U.S. 435, 440 (1934).   Guy Tressillain Helvering, a Democrat from Kansas was the Commissioner of the Internal Revenue of the Bureau of Internal Revenue from 1933 to 1943.  This is the legacy agency of the Internal Revenue Service.  Today, typically tax cases are styled “Taxpayer v. Comm’r”.  Anyway, locks on doors are preparatory.  Folks put locks on their doors to prepare for when the thief comes.  The same way, taxpayer’s must collect, summarize, and maintain substantiation for all deductions claimed on their tax returns in the event the IRS examiner visits.  In the 2019 Besten case, we see the U.S. Tax Court applying the rules established in the 1930s.  In tax law and in law in general, predictability matters; there is little benefit of surprise, duplicity and uncertainty in law.  Taxpayers can prepare and comply with the law if they know the applicable law because federal tax law is not just about the horses.

 

Internal Revenue Code Section 6662 permits the IRS to assess a 20% accuracy penalty on tax deficiencies

Internal Revenue Code Section 6662 permits the IRS to assess a 20% accuracy penalty on tax deficiencies.  The accuracy-related penalties can be imposed by the IRS when tax deficiencies are due to the taxpayer’s negligence, recklessness or willful violations of the federal tax laws. In the Besten case, the taxpayer avoided paying the accuracy-related penalty because he was able to adequately convince the U.S. Tax Court that he acted reasonably and acted in good faith by relying on the professional advice of his tax professional.  This is often a viable defense for the taxpayer who can meet the burden that they (a) relied on the advice of their tax professional, (b) their tax professional was competent and experienced, and (c) they gave their tax professional accurate and complete information and documentation regarding the tax issue. So this particular reasonable cause defense (reliance of the tax professional’s advice and guidance), like the other reasonable cause defenses that might be applicable, depends on all the facts and circumstances because federal taxation and cutting horses is not just about the horses.  Reasonable cause defenses are not automatic relief; but like cutting horses, every reasonable defense should be explored when confronting additional taxes, penalties and interest, because cutting cost is another way of saving money.

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432

What’s up with the Taxpayer First Act

By Coleman Jackson, Attorney & Certified Public Accountant
November 20, 2019

Taxpayer First Act - TFA

During this past summer, the Taxpayer First Act (“TFA”) became U.S. tax law.  The U.S. Congress’ stated purpose of implementing the Taxpayer First Act was to modernize and improve the Internal Revenue Code of 1986.  From a bird’s eye view, the following are three tax law changes that are among the more significant changes made to the Internal Revenue Code of 1986 by the Taxpayer First Act:

 

Form 1040 Taxpayer

  1. The TFA established within the Internal Revenue Service an office known as the ‘Internal Revenue Service Independent Office of Appeals’ to be headed by a Chief of Appeals completely independent and reporting directly to the Commissioner of Internal Revenue. The Office of Appeals is designed to give taxpayers a path to resolution of their disputes with the IRS in the administrative process without the need for costly tax litigation.  Any taxpayer in receipt of a notice of deficiency authorized under Internal Revenue Code section 6212 may request referral to the Internal Revenue Service Independent Office of Appeals.  Individuals and businesses in tax disputes with the IRS can request and obtain their IRS case files in advance of their appearing at an office of appeals conference in defense of their position.  This would permit the taxpayers to school themselves on the applicable law and marshal the facts in support of their tax return position.  Moreover taxpayers will have the right to have their tax cases heard by an independent decision maker and the right to protest adverse IRS decisions against them, including but not limited to, the IRS rejection of their request to go to the Independent Office of Appeals.  The taxpayer will have certain due process rights in the conduct of the Office of Appeals and the dispute resolution procedures.  Finally, the TFA provides that the IRS Independent Office of Appeals process will enjoy increased Congressional Oversight since the IRS Commissioner must submit annual reports to Congress under the TFA.

 

2.	The TFA modifies Internal Revenue Code Section 6015 with respect to Equitable Relief from Joint Liability

  1. The TFA modifies Internal Revenue Code Section 6015 with respect to Equitable Relief from Joint Liability, such as, the joint and severable liability associated with taxpayers signing a tax return with a spouse. The U.S. Tax Court now have the right to review de novo the administrative record established at the time of the IRS determination on the taxpayers innocent spouse relief or other equitable relief claim.  Under the TFA the Tax Court also can consider any additional newly discovered or previously unavailable evidence.  Equitable Relief cases are to be decided based on all the facts and circumstances.  Federal tax law governing equitable relief has always established certain limitations both in fact and time that are not removed or modified by the TFA.  The TFA changes impacting equitable relief claims apply to pending cases filed before this summer and all future equitable relief cases.

 

3.	The TFA modifies Internal Revenue Code Section 6503 with respect to IRS Issuance of Designated Summons

  1. The TFA modifies Internal Revenue Code Section 6503 with respect to IRS Issuance of Designated Summons. First the issuance of such summons must now be preceded by a review and written approval by the Commissioner of the relevant operating division of the Internal Revenue Service and Chief Counsel.  Moreover the burden is on the IRS to establish in the court proceeding that reasonable requests were made for the information forming the basis of the summons.  Taxpayers defending summons in court have due process rights to present counter argument and evidence to the contrary.

These are only three of the changes to tax law pursuant to the Taxpayer First Act (“TFA”); there are other significant changes as well.  Watch our future blog posts which could deal with the IRS implementation of the TFA; Internal Revenue Service Independent Office of Appeals developments under the TFA; and the federal court’s interpretations of the TFA.

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432

Remote Sellers Must Register in Texas before October 1, 2019

By Coleman Jackson, Attorney, Certified Public Accountant
September 16, 2019

 

Remote Sellers Must Register in Texas before October 1, 2019

Texas imposes a 6.25 percent state sales tax and use tax on all retail sales, leases and rentals of most goods and some services that are either sold in Texas or used in Texas.  Cities, Counties and Transit Authorities can charge up to 2% sales tax on taxable goods and services.  This local sales tax varies from city to city, county to county and transit authority to transit authority throughout the state of Texas.   The maximum sales and use tax in Texas is 8.25 percent.

 

online retail sales

Remote sellers are required to begin sales and use tax collection on October 1, 2019 on their Texas sales.    The remote seller must collect the correct tax by using the Sales Tax Rate Locator.  For example if a remote seller sales a chest of imported cigars to a person residing in Dallas, Texas; they must collect 8.25 percent tax on the gross sale at the time of the sale.  If this same sale is made in another city of Texas the total collected tax could be lower.  It would not be higher because 8.25% is the maximum sales and use tax in Texas.  However, other types of tax obligations could be implicated in this hypothetical, such as, tobacco taxes and fees. Remote sellers doing business in Texas must register with the Texas Comptroller of Public Accounts before October 1, 2019 to fulfill their Texas tax responsibilities.  First, remote sellers must apply for a Sales Tax Permit pursuant to the Texas Tax Code.

 

remote seller

Once the remote seller is properly registered with the Texas Comptroller of Public Account and receive their sales tax permit, they will be advised by the Texas Comptroller as to whether they must report their taxable sales and use taxes on a monthly basis, quarterly basis or annual basis.  Monthly sales and use tax reports are due on the 20th day of each month following the reporting month.  Quarterly filers must file their sales and use tax reports on April 20th, July 20th October 20th and January 20th.  Annual filers must report taxable Texas sales and use taxes on January 20th for the previous year.

Out of State sellers or remote sellers are required to begin collecting sales and use tax from their Texas customers on October 1, 2019.  If the remote seller fails to register and report Texas Sales and Use Tax they will be subjected to the penalties, administrative actions, and judicial options available under the Texas Tax Code in enforcing the tax laws.  The TTC provides for civil and criminal sanctions against businesses doing business in Texas and not in compliance with their tax responsibilities.

 

Businesses out of Texas

Businesses, who run afoul of the Texas Tax Code and desire to comply with Texas tax laws, whether they are in Texas or someplace else in the world, could possibly qualify to voluntarily disclose under the Texas Voluntary Disclosure Agreement Process (VDA).  A company representative must initiate the process on behalf of an anonymous client who meets the threshold requirements by contacting the Business Activity Research Team (BART) in writing.  If the business has already been contacted by the Texas Comptroller regarding non-compliance with Texas Tax laws, the business cannot voluntarily disclose.  It should be noted that the VDA process is available for all types of taxes administered by the Texas Comptroller of Public Accounts.  Some of the types of taxes that the Texas Comptroller is responsible for administering under the Texas Tax Code are as follows:

  • Sales and Use Tax
  • Hotel Tax
  • Franchise Tax
  • Tobacco Taxes and Fees
  • Battery Sales Fees
  • Cement Production
  • Boat and Boat Motor Taxes
  • Insurance Taxes
  • Manufactured Housing
  • Controlled Substances

 

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432

The Earned Income Tax Credit Two Year Band

By Coleman Jackson, Attorney, Certified Public Accountant
September 10, 2019

 

The Earned Income Tax Credit

The Earned Income Tax Credit or EITC is designed to assist working class families with children by putting money in their pockets.  The EITC is a tax credit, not, a tax deduction.  The difference is huge!   A tax credit is a dollar for dollar reduction in the taxes owed.  Tax credits generally will result in refunds and money in the taxpayers’ pockets. EITC often results in refunds to the taxpayer; although the IRS cannot issue refund checks for the Earned Income Tax Credit before mid-February.

 

The Earned Income Tax Credit

 

The rules for qualifying and claiming the Earned Income Tax Credit are complicated.  An excerpt from IRS Publication 596 reads as follows:

 

Table 1. Earned Income Credit in a Nutshell:  First, you must meet all the rules in this column.
Chapter 1. Rules for Everyone
1. Your adjusted gross income (AGI) must be less than: • $49,194 ($54,884 for married filing jointly) if you have three or more qualifying children, • $45,802 ($51,492 for married filing jointly) if you have two qualifying children, • $40,320 ($46,010 for married filing jointly) if you have one qualifying child, or • $15,270 ($20,950 for married filing jointly) if you don’t have a qualifying child. 2. You must have a valid social security number by the due date of your 2018 return (including extensions).

3.Your filing status can’t be married filing separately.

4. You must be a U.S. citizen or resident alien all year.

5. You can’t file Form 2555 or Form 2555-EZ (relating to foreign earned income).

6. Your investment income must be $3,500 or less. 7.You must have earned income.

Second, you must meet all the rules in one of these columns, whichever applies.
Chapter 2. Rules If You Have a Qualifying Child Chapter 3. Rules If You Do Not Have a Qualifying Child
8. Your child must meet the relationship, age, residency, and joint return tests.

9. Your qualifying child can’t be used by more than one person to claim the EIC.

10. You can’t be a qualifying child of another person.

11. You must be at least age 25 but under age 65.

12. You can’t be the dependent of another person.

13. You can’t be a qualifying child of another person.

14. You must have lived in the United States more than half of the year.

Third, you must meet the rule in this column.
Chapter 4.Figuring and Claiming the EIC
15. Your earned income must be less than: • $49,194 ($54,884 for married filing jointly) if you have three or more qualifying children, • $45,802 ($51,492 for married filing jointly) if you have two qualifying children, • $40,320 ($46,010 for married filing jointly) if you have one qualifying child, or • $15,270 ($20,950 for married filing jointly) if you don’t have a qualifying child.

 

If a taxpayer claims the Earned Income Tax Credit, the IRS may send a letter to them asking that they send the IRS information to verify the EITC claim.  An appropriate and timely response to the request for substantiation of the EITC is very important because failure to do so could prohibit the taxpayer from claiming the Earned Income Tax Credit (EITC) for subsequent tax periods.  The EITC substantiation may be in the form of the child’s birth certificate, health records, school records and other evidence in substantiation that the taxpayers’ meet all of the qualifications listed above to claim the EITC.  In the event the taxpayers improperly claim the EITC, the taxpayer is banded for two years from claiming the credit.  Internal Revenue Code Section 32(k)(1) permits the IRS to enforce the rules regulating the Earned Income Tax Credit by banding violators from claiming the EITC up to two years.  Recently the IRS Office of Chief Counsel issued an advisement that essentially states that where a taxpayer improperly claim (or fail to substantiate) their EITC claim for one child and continues to claim the EITC in subsequent years for that child, the taxpayers are prohibited from claiming the EITC for that child and all other children even though they may qualify for the EITC in subsequent years.  Claiming the child tax credit when under the two year band for any child has grave consequences.

 

Taxpayers can use the EITC Assistant on the IRS website to see if they qualify for the EITC.  Again claiming the EITC improperly has grave financial consequences.  Working people with low to moderate incomes must follow all the EITC rules so that they don’t run afoul of them and be stopped from claiming the Earned Income Tax Credit even when they otherwise qualify for this working family tax benefit.

 

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432

Taxpayers with Significant Tax Debts Can Lose Their U.S. Passports

By Coleman Jackson, Attorney, Certified Public Accountant
August 21, 2019

 

Taxpayers with Significant Tax Debts Can Lose Their U.S. Passports

 

Ever heard of the Fixing America’s Surface Transportation (FAST) Act of 2015?  Well, under FAST the IRS has the authority to notify the State Department of taxpayers certified as owing the federal government.  A significant tax debt is currently defined as a delinquent tax bill of $52,000 or moreThe FAST requires the State Department to revoke the delinquent taxpayer’s U.S. passport and limit the taxpayer’s ability to travel outside the United States.

 

Taxpayer’s who intend to travel outside the United States must negotiate with the IRS to get the delinquent tax certification lifted

 

Taxpayer’s who intend to travel outside the United States must negotiate with the IRS to get the delinquent tax certification lifted.  Until that happens the taxpayer could become stranded outside of the U.S. with a revoked passport, or be blocked receiving a passport for the first time or on renewal leaving them unable to travel out of the country for any reason.

 

taxpayers who have to travel abroad must responsibility deal with their federal tax obligations long before they need to travel; because other than option one, above (paying the tax debt in full), the suggested options take months and some of them even take years to resolve in negotiations with the IRS

 

The IRS has identified several ways taxpayers can avoid having the IRS notify the State Department of their seriously delinquent tax debt as follows:

  1. Paying the tax debt in full;
  2. Paying the tax debt timely under an approved installment agreement;
  3. Paying the tax debt timely under an accepted offer in compromise;
  4. Paying the tax debt timely under the terms of a settlement agreement with the Department of Justice;
  5. Having a pending collection due process appeal with a levy; or
  6. Having collection suspended because a taxpayer has made an innocent spouse election or requested innocent spouse relief.

The practical tiptaxpayers who have to travel abroad must responsibility deal with their federal tax obligations long before they need to travel;  because other than option one, above (paying the tax debt in full),  the suggested options take months and some of them even take years to resolve in negotiations with the IRS.

The following types of taxpayers have been exempted from the delinquent taxpayer certification requirements under FAST:

  • Taxpayers in bankruptcy proceedings;
  • Identity Theft Victims;
  • Taxpayers whom the IRS has deemed non-collectible;
  • Taxpayers located within a federal declared disaster area;
  • Taxpayers with pending Installment Agreement request;
  • Taxpayers with pending Offer in Compromise with the IRS; or
  • Taxpayers with an IRS accepted adjustment that will satisfy the debt in full; and
  • Taxpayer’s serving in a combat zone is not exempt from the certification rules, but the certification is postponed while they do their tour of duty in the combat zone.

 

Taxpayers with plans to travel abroad simply need to be aware of the fact that their plans can be totally upended if they owe the federal government more$52,000 or more in back taxes.

 

Taxpayers with plans to travel abroad simply need to be aware of the fact that their plans can be totally upended if they owe the federal government $52,000 or more in back taxes.  The $52,000 could be owed on personal income taxes or business taxes where the individual taxpayer has been found be to be a responsible party, such as in payroll taxes with respect to the trust fund penalty that usually applies to delinquent taxpayer who owns the business or even employees of the business responsible for deciding what vendors and suppliers get paid and when.  Also the $52,000 certification threshold can be reached for a single tax period or multiple tax periods combined.  Example No 1, the taxpayer owes the IRS $2,000 for 2009, $14, 000 for 2015, and $40,000 for 2018.  In this example the taxpayer is seriously delinquent and the IRS under FAST can certify them as seriously delinquent to the U.S. State Department.  Example No. 2, the taxpayer owns a windmill manufacturing company with twenty employees; their business slowed to a whisper in the third quarter 2019 and the business owner decided to pay office rent, utilities, employees and suppliers and not the IRS payroll taxes.  The IRS learns of this decision and finds the owner the responsible party under the germane tax section and access a $52,000 trust fund penalty on the owner.  In this case, the owner/taxpayer could be certified by the IRS as a seriously delinquent taxpayer under FAST.  The owner’s passport could be revoked or their passport renewal could be denied by the U.S. State Department.

 

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432